CPP Group ‘shocked’ by City watchdog demands

CPP has been under investigation by the Financial Services Authority for about a year over its sales tactics. It warned a “significant adverse financial impact” is likely as it could have to recompense customers who were mis-sold policies.

The York-based group said it cannot yet predict the full impact on its finances and requested the suspension of its shares at 103p.

CPP sells credit card protection to customers of many of Britain’s big lenders, including Yorkshire Bank, Nationwide and NatWest. Barclaycard, one of its biggest customers, decided not to renew its contract last week. Analysts fear other firms may follow.

CPP said the FSA has requested it review “certain past business sales” and make “certain changes” to renewals.

The company declined to elaborate on the FSA’s specific demands, but chief executive Paul Stobart said he was “deeply shocked by their extent and scope”.

“Its requirements are disproportionate and threaten the viability of the business,” said the firm.

CPP added its 1,969-strong workforce – which includes about 1,000 in York – is at risk.

“We are acutely aware of our responsibility locally,” said Mr Stobart. “There are a lot of people in York who are very worried.

“We cannot discount the possibility of a restructuring. We will need to reshape the business in line with what we can afford.”

The City regulator has come down hard on consumer finance products such as payment protection insurance and packaged accounts in recent months, and its tough line on CPP and its low-cost insurance reflects an increasingly active approach.

A review of CPP’s past sales could stretch back to 2005 – the date from which the FSA took over regulating insurance products.

“The FSA has serious concerns about the manner in which customers were being sold identity theft and card protection policies by the firm,” said the watchdog.

“It is likely that the firm will be required to carry out a past business review of the direct sales it made for both products and, if appropriate, pay redress. The FSA is committed to ensuring consumers are protected and that the firm treats its customers fairly.”

The group, which is still majority owned by founder Hamish Ogston, held six board meetings over the weekend after receiving the FSA’s recommendations.

“We were shocked, perplexed, bewildered and very concerned,” said Mr Stobart, the former Sage executive who joined in October. “In the three to four months I have been at the helm I know the changes in behaviour, the changes in customer experience that are already happening on the ground. We made a lot of progress.”

He insisted CPP’s business model is “perfectly viable”. “We have lot of competitors supplying the same space,” he said, adding its latest customer feedback underlines the “importance of, and need for” its services.

CPP said talks will continue with the FSA over the next two weeks with the hope of fixing a “mutually agreeable” review of past sales and renewal policies. But the group said it “cannot predict the scale or consequences” of the review on its finances.

CPP’s core card protection product costs £36.99 annually, and the policy renews automatically after a year unless the customer opts out. Mr Stobart insisted FSA is “perfectly happy with auto-renewal”, and making customers opt into renewal would be hugely expensive. “Any fundamental shift from where we are on auto-renewal is a big, big issue,” he said.

Citigroup analysts said: “This announcement/uncertainty is likely to lead to further disruption and could, we believe, result in further partners leaving the business.”

Share price suffers

CPP Group’s shares floated on the London Stock Exchange in March 2010 priced at 235p.

Founder Hamish Ogston made nearly £120m from the float, with CPP raising another £30m to pay down debt.

When CPP revealed the Financial Services Authority probe in March 2011, its shares fell more than 50 per cent. Yesterday its shares were suspended at 103p. Mr Ogston, a major benefactor to York Minster, founded the firm as Card Protection Plan Ltd in 1980. During the 1990s it expanded into Germany, Spain and Ireland. In 2000, CPP opened its York HQ. During the next decade it embarked on a series of acquisitions.